1. An unconventional bond makes no coupon payments for 5 years. After that, the coupon rate is 4% for 3 years and then 8% for 7 years. The bond matures in 16 years and has a yield to maturity of 5%. When does the bond begin to behave like a normal premium bond?
A) In 8 years
B) In 7 years
C) In 5 years
Please show all steps and explan why the answer is correct.
2. You are planning to purchase a car in three years and wish to have $10,000 for a down payment. You have access to an account that earns 12%, compounded monthly. How much do you need to deposit into the account today in order to reach your goal?
A) $2,963.49
B) $7,117.80
C) $6,989.25
Please show all steps and explan why the answer is correct.